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Dluhosch, Barbara
Burda, Michael
Year of Publication: 
Series/Report no.: 
CESifo Working Paper 393
This paper proposes a model in which the removal of barriers to trade and factor mobility is associated with endogenous fragmentation of the value-added chain. Fragmentation is the outcome of cost competition - the profit-maximizing choice of cost structure by monopolistically competitive firms. An expansion of the integrated trading area can induce globalization not only in the horizontal dimension associated with love-of-variety preferences, but also in a vertical dimension as firms vary specialization of production stages. While increased trade is likely to in-duce fragmentation when the number of firms is fixed, free entry can either reverse or intensify this result.
International trade
organization of production
technology choice
division of labor
Document Type: 
Working Paper

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